US Home Prices In 2009

Bloomberg has a story about Greenspan’s take on US home prices: Greenspan Says U.S. Home Prices May Stabilize in 2009

Former Federal Reserve Chairman Alan Greenspan said the drop in U.S. home prices will probably end well before early next year as the number of houses on the market diminishes, aiding an economic rebound.

It will not be until early 2009 that we will get close to having eliminated most of this home inventory, Greenspan told a conference in Tokyo today sponsored by Deutsche Bank AG and co-hosted by Bloomberg LP. But it is very likely that home prices will stabilize well before that.

Greenspan added that the extent of damage stemming from the collapse of the subprime-mortgage market won’t be known for months. He described the credit crisis as the worst in 50 years, echoing the assessment of International Monetary Fund economists. Once the markets start to stabilize, especially if the real economies don’t go into a severe recession, then we can expect a recovery to begin to take place, Greenspan, 82, said via satellite from Washington. It will be slow, it will be hesitant. The health of the U.S. housing market is tied to broader financial markets that rely on bundling mortgages to sell as securities, Greenspan said.

The median price of an existing single-family home dropped 8.7 percent in February from a year earlier, the most in four decades of record keeping, according to the Chicago-based National Association of Realtors. Have we reached a point where prices are stable? We cannot know that for a couple of months, Greenspan said. It looks as though we’re going to get a very large rate of liquidation, but not until the second half of this year. Greenspan said inflation will be contained during the current slowdown before picking up as the world economy recovers. It’s difficult to imagine any major breakout of inflation as economic slack continues to increase, he said. What we will see is gradually rising inflationary pressures that will probably be subdued during the current period of slack, but that will surely reemerge when economies pick up.

I personally do not feel the housing problem will be resolved so soon. With drop in new home sales, existing home sales, high foreclosures and job losses the inventory will take more time to be consumed.